NERC reduces tariff, consumers may get 50% cut
FOLLOWING complaints from consumers, particularly industrial users, the Nigerian Electricity Regulatory Commission (NERC) has reduced electricity tariff.
The commission yesterday issued a new order invalidating the special review it did under the Multi Year Tariff Order (MYTO 2.1) which took effect January 1, 2015.
This new order now amends the MYTO 2.1 and has reduced the tariff to be paid by all class of consumers. Henceforth, Discos would be required to first consult with consumers before presenting any request to NERC for any future tariff increase.
Unlike in the past when NERC built components into the tariff structure to enable distribution companies recover their losses, in the new tariff structure, Discos would now be required to recover their losses themselves.
NERC has now asked Discos to recover their losses, as the consumers would no longer bear the brunt of such losses.
Chairman of NERC, Sam Amadi in a notice issued in Abuja yesterday, announced that the development followed petitions from consumers, particularly the Manufacturers Association of Nigeria (MAN). The commission said it consulted with the Bureau for Public Enterprises (BPE) and all relevant stakeholders before coming up with the decision.
MAN had recently issued a threat, warning of looming job losses and impeding collapse of businesses over the very high tariff structure for industrial users. The development had led to series of meetings with NERC and the subsequent setting up of a technical committee to look into the issue.
Amadi, who reeled out the commission’s decision following the work of the committee, noted that it is the responsibility of DISCOs to convince the regulator of any exceptional circumstances for such loss to be passed to the consumers.
His words: “The commission has been listening to consumers and taking full account of the impact of high tariff on consumers and the Nigerian economy has therefore reviewed the basis of the MYTO 2.1 assumptions and has determined that it is inappropriate to transfer to consumers’ collection losses that are controllable by DISCOs. It is the responsibility of the DISCOs to collect their revenue from their customers. Failure to do so should not be a penalty to customers who pay their bills. It is clear that removing the collection losses will lead to lower tariffs for consumers. The removal of collection losses from customer tariff has reduced tariff by more than 50 per cent in some places. Please note that the reduction does not affect the Central Bank of Nigeria (CBN) facility and its repayment.”
He explained: “Therefore, on Monday, March 9, 2015, the NERC issued a new order to the effect that henceforth collection loss, which is defined as the ‘amount billed but not collected’, will not be automatically passed on to consumers of electricity. Consequently, the collection loss for all DISCOs is set at zero.”
He explained further: “Since January 1, 2015 when the NERC approved the MYTO 2.1 we have received several complaints against the increase in tariff of different consumer classes. Industrial and commercial consumers under the auspices of the MAN petitioned the commission asking for a review of the MYTO 2.1 and requested drastic reduction of their tariff. They claimed that such astronomical increase in tariff would kill their business and lead to massive job losses.
“The Electric Power Sector Reform Act and the Business Rules of the Commission mandate the commission to review its decision at the petition of an interested party who complains within 60 days of the decision. Pursuant to these rules, the commission organised public hearing and received evidence from consumer classes on the affordability of the new tariff. The commission also invited the Chief Executive Officers (CEOs) of the distribution companies to the hearing to respond to the case of the consumer groups. Furthermore, the commission reviewed the technical and financial assumption of MYTO 2.1. The review shows that the major underlying cause of the skyrocketing increase in the tariff is the huge Aggregate Technical, Commercial and Collection (ATC&C) losses, which are passed through to consumers. In some DISCOs ATC&C losses increased tariff by as much as 80-103%.
“This new direction comes as part of the commencement of the Transitional Electricity Market (TEM). TEM is built on bilateral trading between parties and is geared towards ensuring an efficient market where cost reflectivity will lead to more affordable electric services for consumers. As part of preparing for TEM, the commission has issued a tariff review regulation that requires the utilities to consult with relevant consumer classes before presenting a tariff review application to the commission to approve. It is now the responsibility of the DISCOs to prepare and present to the commission a tariff that will ensure that they recover their costs and ensure efficient operations.
NERC stressed that this new order now amends the MYTO 2.1 and has reduced the tariff to be paid by all class of consumers.
According to Amadi, “In the review of MYTO 2.1 the commission followed due process and the regulatory principles. The EPSR commits the commission to ensuring full recovery of prudent costs for efficient operators. The commission is obligated to make sure that only prudent and efficient costs are passed to consumers. The principle is to ensure that the distribution company operates efficiently and provide quality and affordable services to consumers.
“NERC remains committed to the principle of cost-reflective pricing and to the development of an efficient and financially viable electricity market. These are important to support the investment that is needed to ensure the electricity supply industry meets the needs of the Nigerian economy. The decision to review tariff is completely compatible with the terms of the privatisation and has been reviewed with the BPE. NERC and BPE are working together to advocate for series of fiscal policies that will foster easier access to investible capital to further increase capacity and enhance reliability in the sector.”